The effect of employee treatment policies on internal control weaknesses and financial restatements

Jun Guo, Pinghsun Huang, Yan Zhang, Nan Zhou

Research output: Contribution to journalArticlepeer-review

26 Citations (Scopus)

Abstract

This study investigates the role of employment policies in reducing internal control ineffectiveness and financial restatements. We provide new evidence that employee treatment policies are an important predictor of ineffective internal control. We also find that employee-friendly policies significantly reduce the propensity for employee-related material weaknesses. These results suggest that greater employee benefits facilitate the acquisition, development, and motivation of the workforce and ameliorate the loss of valuable human capital, thereby mitigating employee failures to implement internal control tasks properly. Moreover, we document novel results that financial restatements, especially those caused by unintentional errors, are less likely to arise in firms that invest more in employee benefits. Collectively, our emphasis on the effect of employee treatment policies on the integrity of internal control and financial reporting distinguishes our paper from previous studies that focus on the role of top executives in accounting practices.

Original languageEnglish
Pages (from-to)1167-1194
Number of pages28
JournalAccounting Review
Volume91
Issue number4
DOIs
Publication statusPublished - 2016 Jul

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'The effect of employee treatment policies on internal control weaknesses and financial restatements'. Together they form a unique fingerprint.

Cite this